2016 (5) TMI 1528 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - Whether assessee has demonstrated that the investments were made from and out of the surplus funds? - HELD THAT - Rule 8D(2) provides for computation of expenditure by all the three limbs provided therein on aggregate basis. Since the CIT(Appeals) has not considered the available funds with the assessee and source thereof, this Tribunal is of the considered opinion that the Assessing Officer shall reconsider the issue afresh and find out whether the assessee had any surplus funds as observed by the CIT(Appeals). If surplus funds were available, the Assessing Officer has to consider such surplus funds for making the investments. Since the order of CIT(Appeals) is not clear regarding the availability of surplus funds and source thereof, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. AO shall reconsider the issue afresh and find out the availability of surplus funds and source thereof and thereafter decide the issue in accordance with law, after giving reasonable opportunity to the assessee. Disallowance of contribution made to ESI and Provident Fund. - Addition u/s 2(24)(x) and Section 36(1)(va) - HELD THAT - It is not in dispute that the employees as well as the employer s contribution to Provident Fund and ESI was deposited before the due date for filing of return of income. The Madras High Court in Industrial Security Intelligence India Private Limited 2015 (7) TMI 1063 - MADRAS HIGH COURT after considering the judgment of Apex Court in Alom Extrusions Limited 2009 (11) TMI 27 - SUPREME COURT found that even though the employees contribution towards Provident Fund and ESI was deposited after the due date prescribed under the relevant Act but before the due date for filing of return of income under the Income-tax Act, no disallowance can be made under Section 43B of the Act. In view of this judgment of Madras High Court in Industrial Security Intelligence India Private Limited (supra), this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues:
1. Disallowance under Section 14A of the Income-tax Act, 1961
2. Disallowance of contribution made to ESI and Provident Fund

Issue 1: Disallowance under Section 14A of the Income-tax Act, 1961:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding disallowance made under Section 14A of the Income-tax Act, 1961. The Assessing Officer estimated the disallowance at ?1,08,15,631 under Rule 8D(2) of Income-tax Rules, 1962, but the CIT(Appeals) restricted it to the dividend income earned by the assessee. The Tribunal found that the CIT(Appeals) did not consider the available funds with the assessee and the source thereof. Therefore, the matter was remitted back to the Assessing Officer for reconsideration to determine if surplus funds were available for making the investments. The Assessing Officer was directed to decide the issue after establishing the availability of surplus funds and their source.

Issue 2: Disallowance of contribution made to ESI and Provident Fund:
The Assessing Officer found that the contribution to Provident Fund and ESI collected from employees was remitted belatedly. The assessee claimed deduction under Section 36(1)(va) of the Act, arguing that the employees' contribution should be treated on par with employer's contribution. The CIT(Appeals) allowed the claim based on a judgment of the Madras High Court, stating that as long as the contributions were deposited before the due date for filing the return of income, no disallowance could be made under Section 43B of the Act. The Tribunal upheld the decision, citing the Madras High Court's judgment and confirmed the order of the lower authority.

In conclusion, the Tribunal partly allowed the appeal of the Revenue for statistical purposes, remitting the first issue back to the Assessing Officer for further consideration and confirming the decision on the second issue based on the Madras High Court's judgment.